NBN Co backs down on price rises

The company building the national broadband network has promised real price cuts to its wholesale customers but said the backtrack would not dent its ability to deliver a return on the government’s $35.9 billion investment.

NBN Co confirmed yesterday it would freeze price increases for the first five years and then limit rises to half the inflation rate for the following 25 years, a policy that should make internet access cheaper for all ­Australians.

The document suggests that the NBN can cut prices in real terms, meet its interest payments and deliver a return to the government.

But prices for telecommunication services overall are falling much faster than NBN is proposing and internet service companies said the cuts were a hollow promise.

NBN Co’s head of product development and industry engagement, Jim Hassell, told The Australian Financial Review that real cuts in prices would not undermine the network’s long-term financial objectives outlined in its corporate plan last year, which forecast revenues of $20.8 billion up to 2020 and an internal rate of return of 7 per cent.

“Our revenue assumptions were always based or reducing prices in real terms," he said.

“We are not about maximising profits, we are about recovering our costs and providing a small return, and anything outside of that gets reflected back into reduced prices."

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The formal submission provides NBN Co with a way around its own undertakings by suggesting the ACCC could not reject price rises if the ­company changed plans.

Critics said NBN wanted to preserve the right to heavily invest in its network to boost profits, much as regulated electricity distribution and transmission monopolies have been accused of doing. According to the document, the ACCC “must" approve price increases for certain products if they are “not inconsistent with the long-term interests of end users".

The proposals limit the input from internet companies that connect to the NBN, leaving it up to the regulator to talk to industry on future price rises rather than guaranteeing consultation with companies such as
Telstra
and Optus.

NBN Co conceded it had the option to seek prices rises, an issue that worries the internet service providers that will sell NBN services to the public and will have to compete with other forms of technology, including ­wireless.

“We would like to have the capability to ask the ACCC if we can [raise prices] but we would have to request special permission as it were," Mr Hassell said.

Internet service providers said prices in the broadband industry naturally decreased over time and even increases below inflation would be a bad outcome for consumers.

“This is more smoke and mirrors really, everyone in the sector knows that prices drop over time, not increase," the chief executive of Vocus Telecommunications and a confirmed NBN sceptic, James ­Spenceley, said.

“So any increase is compounded really, as typically customers can expect them to drop. Even at 50 per cent of CPI, the Australian public is definitely worse off.

“I fundamentally think that with the NBN the public is being sold a white elephant. We are going to be stuck with a bill long into the future, which won’t affect the government’s budget because it comes under a ­capital cost."

AAPT chief executive David Yuile was similarly sceptical about the capped price increases, saying he had never known prices to go any way other than down in the industry.

Telstra and Optus declined to comment and said they needed more time to assess the document.

In a discussion paper in July, NBN Co agreed to cap price rises for its basic service of 12 megabits per second to $24 a month for five years and limit increases after that to half the inflation rate.

But it wanted the ability to increase prices for high-speed services for businesses to 5 per cent above the consumer price index rate, citing questions about the level of customer interest.

“Demand uncertainty remains in relation to issues such as the price payable by end users for broadband services over time," NBN Co said in the July discussion paper.

The price shock mechanism was criticised this year by opposition communications spokesman
Malcolm Turnbull
. He accused NBN Co of planning “price gouging," anti-competitive behaviour typical of a monopoly, and abusing its power.

He declined to comment yesterday.

Last month it was revealed that 2000 people out of a potential 18,000 users, or just 11 per cent of homes with access to the NBN, had signed up for the service.

Mr Quigley has previously pledged that NBN Co would generate positive earnings before interest, taxes, depreciation and amortisation before its eight-year construction is complete.

The price commitments yesterday also influence an $11 billion agreement between NBN Co and Telstra, which is almost certain to miss its December 20 deadline after the ACCC confronted new legal questions over the deal.

Taking a hard line against some of the regulator’s requests, NBN Co rejected the idea of letting the ACCC examine the network’s construction costs in order to decide if its prices were justified.

The ACCC had raised the idea in a discussion paper but NBN Co appears determined to keep independent oversight of its cost structure to a minimum. Mr Hassel said NBN Co was able to promise lower price rises now because it was discovering how much people wanted to sign up.

“We get more confident on the demand for services with the Telstra agreement, and we are still waiting for the ACCC decision on that," he said.

A spokesman for the Minister for Telecommunications and Broadband,
Stephen Conroy
, encouraged phone and internet companies to provide feedback to the ACCC on the undertaking.

Mr Hassell said he was hopeful regulators and the industry would respond positively.

The undertaking would “provide telephone and internet service providers with a new level of certainty on pricing and network access in the NBN world, both today and for many years to come".